Wednesday, September 30, 2009

Authenticating Warhol

The NY Review of Books has a very interesting article on this perhaps paradoxical endeavor, including a review of documents in the lawsuit against the Warhol Foundation. The dispute raises questions at the heart of Warhol's endeavor to separate art from authenticity. (There's also a cute piece on David Hockney's use of the iPhone to create and share new art, but despite the promise in the print edition I can't find it up on the website yet.)

Monday, September 28, 2009

Rare champerty ruling in false advertising case

Del Webb Communities, Inc. v. Partington, 2009 WL 3053709 (D. Nev.)

Okay, I admit it: I was excited by the case name because of the famous Del Webb nuisance case. Del Webb still builds homes. The defendants operated M.C. Mojave construction, which offered Del Webb’s customers at an age-restricted community in Clark County free home inspections and provided them information about their rights and ability to file complaints for defects in their homes. Mojave had a Nevada B-2 contractors license, and expanded the scope of its operations over time beyond its initial room additions/patio covers to building new homes, renovating homes, and operating an inspection division that specialized in identifying building violations.

To solicit business for the home inspection division, Mojave employees went door to door in Del Webb’s Sun City Anthem development offering a free home inspection. One flyer, citing Nevada statutory law, told homeowners that they had a right to be reimbursed for costs associated with construction defects, explained how they could notify their builder about defects, and explained how they could hire a lawyer to pursue their claims. The flyer said that Mojave would be paid only if the homeowner succeeded in getting reimbursed, and that even if the homeowner was unsuccessful, s/he would assign the right to reimbursement to Mojave. One law firm Mojave worked with provided a retainer letter stating that if the client ended its representation, but recovered from the builder, the client would be responsible for all fees and costs. Del Webb’s warranty covered certain structural elements for up to ten years, and provided that unresolved disputes had to be submitted to mediation.

Del Webb sued defendants for champerty and maintenance (!), false advertising under state and federal law, and intentional interference with the contracts between Del Webb and its customers. The court earlier granted a preliminary injunction against defendants barring them from performing home inspections or soliciting related business.

Maintenance “is officious intermeddling in a suit which in no way belongs to the intermeddler, by maintaining or assisting either party to the action, with money or otherwise, to prosecute or defend it,” in other words, helping another prosecute a suit, while champerty is a species of maintenance “in which the intermeddler makes a bargain with one of the parties to the action to be compensated out of the proceeds of the action,” in other words maintaining a suit in return for a financial interest in the outcome.

Though other states have abolished these torts, Nevada still recognizes them. Here, the claim is really champerty: defendants would make money from clients’ recovery against Del Webb. The elements: (1) the party must have no legitimate interest in the suit; (2) the party must expend its own money prosecuting the suit; (3) the party must be entitled by bargain to share in the suit’s proceeds. Here, the defendants had no interest in any lawsuit—Del Webb already provided its homeowners protection for certain defects. Defendants also spent their own money instigating complaints—providing the necessary home inspections and related reports. And by contract they were entitled to be reimbursed for the home inspections, or to the assignment of the homeowners’ rights against Del Webb. The court thought this situation “particularly problematic” because defendants didn’t just offer a free home inspection, but also guided homeowners to file complaints against Del Webb under Nevada law, told them the role of the home inspection in filing a complaint, and advised them how to hire a law firm to assist. The defendants were liable for champerty.

Nevada consumer fraud law protects against deceptive trade practices, defined as including conducting a business without all required licenses. Defendants argued that their general contractor’s license was sufficient, but Del Webb argued that a special license was required to perform home inspections. Interpreting state law, the court agreed with Del Webb. Defendants argued that only the state had the right to enforce licensing requirements, but the consumer fraud law generally provides for a public cause of action for deceptive trade practices.

The strongest argument seemed to me to be causation. Was Del Webb’s injury caused by the deceptive trade practice? Defendants argued that a third party business can’t be a victim under state law, but the statute specifically provided that evidence of a deceptive trade practice was prima facie evidence of intent to injure competitors, implicitly defining competitors as “victims” and proper plaintiffs under the statute. And Del Webb’s Home Protection Plan meant that, upon receiving notice or complaint of a defect within the scope of the plan, Del Webb would have inspected the home and repaired the defect, which means that the parties competed. Anyway, Del Webb was still a victim, because the defendants were suggesting/encouraging lawsuits against it, and the defendants should have known that their practices were “inevitably” going to be adverse to Del Webb.

But Del Webb still needed to prove its damages. It submitted depositions that certain homeowners relied on the defendants’ misrepresentation that they were licensed or working in conjunction with Del Webb to allow the inspections. Thus, customers put themselves in breach of their warranties with Del Webb, precluding Del Webb from communicating with them or being able to repair their homes under the warranties. This was sufficient to create a genuine issue of material fact on damages, but not enough to warrant summary judgment in Del Webb’s favor because the extent of actual damage was unclear.

For its Lanham Act claim, Del Webb identified three false statements: (1) the home inspections were free; (2) the defendants were licensed to perform the inspections; (3) the defendants were performing inspections in collaboration with Del Webb.

Here again, defendants argued that they weren’t in competition with Del Webb. Under 9th Circuit precedent, “competitive injury” is the key to standing, rather than “exact identity” between the parties’ businesses—did the statements at issue tend to divert business from the plaintiff to the defendant? (Would there have been “business” at all without defendants’ acts here?) The court pointed out that defendants also build and renovated homes, putting them in direct competition with Del Webb no matter what. Moreover, even if defendants just did home inspections, false advertisements about that would have inflicted competitive injury on Del Webb. As noted above, under Del Webb’s warranties, homeowners were supposed to contact Del Webb with problems, and Del Webb would be entitled to inspect and repair if necessary. Thus, the home inspections diverted customers away from Del Webb. Unnecessarily (and probably insufficiently), the court noted that “to the extent the Mojave Defendants were finding and reporting defects that were either trivial or non-existent, the Mojave Defendants could have injured Del Webb’s reputation and taken future business away from them.”

On to falsity: was “free” literally false when forms signed by customers stated the “cost” of the home inspection services, to be collected if the builder reimbursed the customer, and when the notices that defendants had customers submit to Del Webb notified Del Webb of the “expense” customers had incurred in the home inspection? The court agreed that if homeowners took the time and resources to pursue a complaint and actually recovered, this conduct was a cost to them, and they’d have to apportion part of the recovery to the defendants—indeed, knowing this would likely affect their settlement amounts. Thus, the inspection wasn’t “free.” Homeowners had to pay if they recovered, and even if they didn’t, they had to assign their right to recover to the defendants.

Likewise, the licensing statements were false.

The final set of false statements mainly dealt with placards the defendants left at homes after an agreement was made for an inspection. They stated: “As a courtesy, we are informing you that, due to a ‘Builder’ home inspection, you may experience a few hours of extra vehicular traffic in your neighborhood. These vehicles belong to representative & experts from both MC Mojave Construction & your Builder, his subcontractors and agents.” (Is this advertising? It’s post-deal as to the specific customer, but may count as advertising to the neighbors.)

The court thought this issue wasn’t as clear-cut, because a builder’s inspection could be a generic home inspection, though capitalizing “Builder” made it more likely that the reference was to Del Webb. The court found it ambiguous. (Really? Even with the stuff about vehicles from “your Builder”? Aside from vague deposition testimony by someone who wasn’t sure she’d seen the placard, there was no evidence of actual deception, so there was no genuine issue of material fact as to the placards. However, other homeowners testified to personal representations to them that defendants were working with Del Webb. Del Webb also presented testimony that these misrepresentations were material.

Finally, defendants contested whether the false statements were made in “interstate commerce.” The court found that the best evidence for Del Webb was that the defendants created a website at to advertise their services, claiming (future) divisions in Southern and Northern California; the internet is an instrumentality of interstate commerce, but Del Webb would have to prove that the false statements of fact were made in connection with defendants’ website, which meant that summary judgment had to be denied on the record before the court. But defendants’ fliers and placards didn’t leave the state or even Del Webb’s development. Nevada consumers calling defendants within Nevada to inspect their Nevada homes don’t reach interstate commerce. Nor did the court find that home inspections of Nevada homes have a substantial impact on interstate commerce. (Whoa. I’m not sure the Supreme Court would agree.) It wasn’t entirely clear to me whether Del Webb could submit evidence on this at trial, or whether all the false advertising claims except those made on the website were dismissed—given what the court then said about damages, the former is the logical conclusion.

Given the evidence, once could reasonably conclude that defendants’ claims were deliberately false, creating a presumption of actual deception and reliance. That, along with testimony from deceived/reliant homeowners about the misrepresentations of alliance with Del Webb, allowed Del Webb to show injury, and Del Webb could explain at trial the basis for a monetary award, which under §43(a) could include an award of defendants’ profits on an unjust enrichment theory.

Sunday, September 27, 2009

TPRC, Intellectual Property Rights and Competition

Moderator: Rebecca Tushnet, Georgetown University

Competition, innovation and intellectual property rights in software markets
Paul de Bijl, Michiel Bijlsma, Viktoria Kocsis - CPB Netherlands Bureau for Economic Policy Analysis

Public policy in relation to open source software: is public policy supporting open source desirable? It depends on the type of software and the market characteristics.

Traditional view: innovation is costly, and ex ante investments need to be recovered ex post through IP rights. Radically different model: innovation is interactive; IP rights should protect against knock-offs but allow building upon.

Proprietary model offers the best prospects for recovering investments, which may be important when you need to purchase expensive outside assistance—e.g., games, where you need to purchase graphic artists’ services. Follow-on innovation takes place through contracts/licensing.

Open source model is more interactive/organic. Need a different business model—support, education, complementary products alongside giving away product. Other incentives: job market signalling, intrinsic motivations. No barriers to follow-on innovation except that the follow-on has to use the same type of license structure.

Question: what kind of market failures are important to deciding on policy intervention? (1) Lock-in for consumers/vendors—consumer switching costs or network effects. (2) Which model is best for innovation. If development requires expensive expertise that has to be purchased outside the programming community, strong proprietary/closed licensing models may be better. Are there any obstacles to efficient contracting for follow-on innovation. If the first mover can efficiently contract, then there’s no compelling reason to stimulate open source.

What can the government do if open source is desired? Be lead customer for open source. Give preference to open source in procurement. If open source is not superior, government may still want to do increased competition measures more generally—focus on interoperability. Keep incentives in mind, but if there is serious customer lock-in, competition is a problem and can relatively risklessly be increased without harming incentives.

Government failure should be taken into account: picking winners is a risk. And bias in public procurement may distort incentives. Rent-seeking problems. Alternative solution for lock-in: enforce seamless exchange of files between users in network effect markets—text editors/office applications. Can enforce open standards.

Kathy Strandburg: What is the proper concern of governments? Could want freedom from being tied up with a big US company; could want specialized services/programs—it’s not just about encouraging open source for efficiency reasons.

A: Reason for this report: parliamentary debate over the cost of software for the government, argument about cheapness of open source/quality.

Copyright’s Latest Communications Policy: Content-Lock-Out and Compulsory Licensing for Internet Television
Marvin Ammori, Kate Aishton, Chris Riley

A media policy problem: the impediments to the mainstream emergence of online video. Goal: the internet should be a competitor to the plug that comes into your house for TV. Three media policy focused problems: blocking/discrimination against content; metering; set top boxes; and the big one, content lockout, the inability of internet providers to get access to the televised content that will drive adoption.

Blocking/content discrimination: net neutrality. Metering: video takes up lots of bandwidth—streamed Netflix movies will exceed the standard internet usage. Metering technique can impede adoption. Set-top boxes: provided by cable provider, and don’t integrate the internet so you can watch on your TV, which is the holy grail of integration because the TV is so much a bigger screen.

Big deal: content lockout. Even if you have the tech, there’s difficulty accessing the mainstream broadcast content, which will be required for effective competition. We want to see someone other than the cable companies and other than the TV companies to offer you that.

Specific problems with getting access to content: The Daily Show was available online, fullscreen, whole show. Time Warner didn’t like the competition and put together a list of all Viacom shows available online, and threatened to teach customers how to use these in order to drive down the program access fees/affect ad rates. While the terms they negotiated aren’t public, inside sources say if you look at the Comedy Central website now, you see that you don’t get the Daily Show intro, a tiny screen, and multiple clicks are required to watch.

Joost, a video startup, gave up serving consumers directly. Online content has a lot of movie trailers, some porn, other things that aren’t the must-have content needed to attract viewers. Even good content online is barred from displaying on your TV screen in an attractive way—fight between Hulu and Boxee is an example. Content producers own Hulu, which has a lot of great content, but Boxee’s software allowed consumers to stream online video to TV simply, with great format, and using your TV remote control. Last year, Hulu suddenly severed the relationship. They don’t want the online experience to mimic the cable experience.

As best as we can tell, it wasn’t fear of competition with Hulu, but fear of competition with cable TV, where broadcasters make a lot of money through licensing. Cable companies are using their market power and relations with content companies to discourage software companies from getting their hands on their valuable content. We are not saying we think this is right now illegal, but we think it is bad policy.

This comes out of the retransmission consent procedures—cable companies aren’t legally allowed to discriminate against competitors in favor of their own content. There’s also a meaningful nonexclusivity provision, DC Circuit just heard oral argument on this—can’t have an exclusive cable channel; though satellite companies are allowed to have exclusive channels. We’re starting to see massive market power among cable companies.

Solution: compulsory licensing. Allows competition and compensates copyright holders. Not a crazy change, but consistent with history of new technologies. Internet radio is a model that could work for online video. Sets out who has access to compulsory license, Copyright Royalty Arbitration Board for reasonable royalty if negotiations fail.

Q: How much reluctance is due to cable industry not noticing revenue online?

A: No substantial shift yet—we live in more urban areas with faster broadband, and people of our generation/class position tend to watch more stuff that’s available online: Daily Show v. Oprah. Also, the current model online does not produce the same amount of revenue as the cable market does. You can see where their concerns come from!

Q: TVonline—effort by cable providers to allow internet access to cable programming.

A: Better than nothing, but you need a cable subscription—impedes market entry by people who have no connection to the current cable industry.

Q: Why compulsory licensing instead of program access? ESPN 360.

A: He doesn’t think program access is done right. Compulsory licensing doesn’t eliminate troublesome legal structures, but its beauty is that it creates a more open market for people who want access to the content. Cable TV can benefit from compulsory licensing—smaller companies complain they’re screwed by big broadcasters.

Q: Internet radio licensing rates have been controversial—set rates so high that smaller players are driven out. How to handle that?

A: No perfect solution. If compulsory licensing is seriously pursued, we can’t repeat past failures, but framework is right.

Q: Is metering a nefarious conspiracy? Small percentage of users uses huge percentage of bandwidth.

A: It depends on what the numbers are. Comcast’s 250 gig soft cap—that’s probably going to allow a lot of HDTV. But TWC is using 50 gigs, and if you use the average household numbers for TV watching, that would triple/quadruple your monthly internet bill to watch the same amount of TV online. Plus this type of metering doesn’t decrease congestion at prime time.

Q: This is a big challenge to copyright rights. Is there something special about the internet and broadcast, when copyright owners can decide when to distribute movies on HBO or in theaters?

A: This isn’t a question of user rights to access content—it’s a matter of media policy, assuming copyright rights are in place. A lot of engineers, TV people think that 40 years from now all TV will be via IP. We should manage that transition properly, as a matter of media policy.

Characterizing Digital Media Exchanges in a University Campus Network
Alexandre M. Mateus, Jon Peha - Carnegie Mellon University

We don’t know as much as we should about p2p usage; users may refrain from disclosing their behavior, and it’s hard to tell how (if at all) filesharing affects copyright owners’ sales. Various tech has been considered, including deep packet inspection (DPI): deployed in some universities in the US. Considered by lawmakers as possibly mandatory for universities/ISPs. His study: Analyzed results of extensive DPI monitoring in a campus network.

Objectives: assess effectiveness of DPI, consider whether intervention is required, shed light on impact of p2p on revenues of copyright owners.

Over about 1 month, close to 40% of students used p2p and 70% of those transferred or attempted to transfer copyrighted content—4 titles per student per day. All demographics participated in filesharing, regardless of ages, genders, majors—even statistically significant differences were often practically small. P2p activity decreased about 10% over Spring 2007 to Spring 2008 (and 20% decrease in those using p2p detected as transferring copyrighted content), across demographics.

How to interpret these results? First, these are lower bounds because the tech was limited. It didn’t detect encrypted p2p traffic. It also didn’t detect activity involving copyrighted content if it wasn’t in the database used by the tech. Also, content transferred inside a zip file couldn’t be detected. And if the tech didn’t collect consecutive seconds of the content—video required a lot more bytes of collection before it could be ID’d. There could be a decrease in actual p2p use, or an increase in the use of evasion techniques.

In spite of these limitations, given enough monitoring time, DPI could detect most users using p2p to transfer copyrighted content (because people tended to transfer multiple files). You can tolerate a lot of false negatives and still detect most users. We can go as low as detecting 10% of events and still see about 90% of the users—doesn’t scale as well when you look at unique titles though.

Gathered all titles/filenames in metadata, regardless of whether it was in central database. Mostly songs, movies, and TV shows. Filenames: about 20% isn’t present in central database—adult content, software, books, pictures. Discrepancy between detection via metadata and via database, which is really good at songs. Huge discrepancy in video: movies/TV shows. 25% of users are transferring video if you look at file names, but only 2-4% are if you look at the database. So, can the database still find people who are transferring video, given the habit of transferring multiple files? For songs, 80% of all users transferring a particular popular song would be detected by the database, while 45% of all users transferring a particular popular video would be.

Due to predominance of video content, Bittorrent users are less likely to be detected transferring copyrighted content as compared to Gnutella.

Impact of unauthorized p2p transfers on content sales: compare p2p usage to iTunes usage, compared by IP address, which doesn’t represent users but is close enough because all IP addresses were fixed in the dorm rooms over this period. Broke down iTunes activity by number of bytes transferred. 1/3 of p2p users still use the iTunes store, and are somewhat more likely to go there only to sample content, but ¼ still buy from iTunes. Comparable % of p2p and non p2p users purchase content from iTunes. P2p and non p2p users download comparable quantities from the store as well. Contradicts the market harm hypothesis.

The figures on use, while decreasing, are compatible with RIAA estimates.

Limitations: encryption! DPI can only ID content in a central, constantly updated database, and only when it’s in the clear. Detection of video will be harder than detection of audio. But still, given weeks, you can still ID the users who are doing it.

Q from Strandberg: Bittorrent numbers are very low—10% of use detected as copyrighted content. Even accepting that video detection is limited, doesn’t that show high non-infringing use of Bittorrent?

A: He can’t be sure. In a single day, the numbers are lower, but they might get higher for an individual user over time.

Q: Bittorrent source files tend to be more compressed, .rar and other larger files.

A: Did you see increases in encrypted traffic? You could see source/destination—could you see whether it was coming from a tracker. Were you able to match video and see whether legal online availability decreased downloads?

Q: We have a slightly increased percentage of unidentified/unclassified traffic, but he can’t say that’s because of encrypted p2p. Source/destination: can’t do much given that they’ve anonymized the data. Also hasn’t done analysis on availability—but this was all collected prior to Hulu’s full launch, and he thinks that might have made a big difference. (Also prior to DRM-free music on iTunes.)

A: What was the school’s policy on p2p?

Q: Said don’t use it for illegal purposes; didn’t have bandwidth limitations; publicized that DPI would be occurring.

TPRC 2009: Copyright, DMCA and IPRs

Moderator: Sherwin Siy, Public Knowledge

Statutory Damages in Copyright Law: A Remedy in Need of Reform
Pamela Samuelson, University of California Berkeley, Tara Wheatland, Berkeley Center for Law & Technology

Tripartite structure of 1976; statutory damage awards in recent years have become sometimes grossly excessive, ignoring the initial statutory scheme. The paper articulates principles to make statutory damages better.

Some say the US has always had statutory damages, so they can’t be unconstitutional. But a 50-cent-per-sheet penalty from the Statute of Anne, 1790 Act, in copyright until 1909, was substantially different from today’s statutory damages. Explicitly penal, and thus narrowly interpreted; was a fixed fee, half going to the US government; rarely used because an equity court couldn’t grant, and plaintiffs usually wanted equity for an injunction and an accounting, which wasn’t available in a common-law court.

Legislative history of 1909 Act: considerable dissatisfaction with per-sheet penalty.

1909: For the first time, the law-equity split was ended—could get plaintiff’s lost profits plus defendant’s profits, plus injunction, costs and forfeiture, in one action. Statutory damages were created as an “in lieu” alternative to lost profits and defendant’s profits, not as a penalty. The goal was to compensate the plaintiff when damages/profits were difficult to prove. The perceived need for a penalty was broken off into a new criminal provision for willful infringement for profit. Caselaw: generally in keeping with compensatory goals. Courts would sometimes refuse to award statutory damages where actual damages were shown/approximated.

1976: New tripartite structure, creating a special rule for innocent infringement: could lower to $200 or even $0 nonprofit educational users. Ordinary infringement, $250 to $10,000 per infringed work. This was a change directed at making excessive awards less likely—per work, rather than per infringement. Didn’t foresee problems in modern era of multiple low-value works. Courts were expected to take actual damages into account in setting actual damages in cases of ordinary infringement. The reform that gave rise to the gravest modern problems: a new enhanced level of damages for willful infringement up to $50K. Congress expected that this award would only be available in exceptional cases like counterfeiting, not just every time someone should have known that a work was infringing.

Today, copyright owners who qualify can elect statutory damages any time before final judgment. 1909 Act: anyone could get statutory damages; 1976 Act: registration within three months of publication/before infringement began required. Means that major copyright owners are eligible, but not all victims of egregious infringement. The ordinary infringement minimum has now been raised to $750 and the maximum to $30,000; courts often treat ordinary infringement as willful, which goes up to $150,000. “Should have known” is now the standard, even where there were plausible, albeit unsuccessful, fair use and other defenses. This is inconsistent with what Congress intended. Courts haven’t developed a guiding jurisprudence. Congress expected courts to be the ones awarding statutory damages, but Feltner held that there was a right to a jury trial, and some of the worst awards come through juries.

Excessive awards: Jammie Thomas on 2nd trial, $80K per song: $1.92 million award. The jury was divided—some wanted to award $750 and others wanted to award larger sums, and they picked a number. Compare to $220K award in first trial, and $750 per song awarded by trial judges in 12 other music p2p cases. Also: $118 million Judge Rakoff was ready to award to for its “beam-it” service, despite lack of actual damages to RIAA firms and lack of profits. Rakoff explicitly said he was doing so in order to deter and also all those other people out there on the internet paying insufficient attention to copyright law. $19.7 million award against Legg Mason for photocopying articles form journals to which it subscribed, compared to $66K in actual damages. $1 million initial award in LA Times v. Free Republic, where a nonprofit conservative website posted news articles to show bias; eventually settled for $10K.

Other examples of arbitrary awards: $300K for posting two poems on a website, but $750 per work for Scientology texts. Peer cases involving similar sound recording infringements—vastly different amounts per work.

Huge damage awards and their potential have real chilling effects on many different sectors: documentary filmmakers, tech innovators—where the per infringed work rule leads to grossly excessive awards because each song that might be processed is potentially a new award. Google Book Search: another example where the exposure Google faced for scanning 8 million books is quite substantial.

Principles for courts: award the minimum when there’s no damage to plaintiff or profits to defendants, or when the plaintiff is unwilling to show approximate evidence of harm. Approximate actual damages when there was a plausible fair use or other defense. 2-3x actual damages/profits when reclkless or intentional or some other reprehensibility. 10x if highly willful. Wouldn’t need constitutional jurisprudence if we had these principles.

However, as things are, due process issues arise. When awards are grossly excessive, they violate due process under BMW v. Gore. Juries in particular may be insufficiently constrained, requiring de novo review. Don’t punish this defendant for the wrongs to other parties who are strangers to the litigation. Three guideposts: reprehensibility of defendant’s conduct—some are worse than others in copyright as in tort law. Higher ratios are ok when the conduct is more reprehensible. Disparity between the harm to the plaintiff and the punitive award—few awards exceeding a single digit ratio will satisfy due process. Ben Sheffner thinks this guidepost shouldn’t apply in copyright, but she thinks that approximating actual damages is generally possible. Third: comparison of award to ordinary civil penalties, which is a little more troublesome. Part of what we should look at is other awards for similar kinds of infringement.

Two district court cases have rejected the idea that BMW applies to statutory damages, but she disagrees. Part of the reason: courts increasingly talk about statutory damages for willful infringement as punitive, which makes due process review appropriate even when there are statutory caps.

We need statutory reform as well as judicial action. The problem is the melding of compensatory/moderately deterrent functions and the penal function. Canada has statutory damages, but only for ordinary infringement and only where actual damages are hard to prove, and then there’s a separate punitive award for exemplary purposes. Consider patent or TM-like awards of up to 3x damages as an alternative to statutory damages. The US is the only country with this whacked a statutory damages regime. Out of 120 WIPO countries, less than 20 have a statutory damages award scheme at all, and most of those were forced to do so by US FTA agreements.

Undue Process: Challenges for Rightsholders and Service Providers in Implementing Section 512’s Notice and Takedown Provisions
Jennifer Urban, Laura Quilter

Empirical perspective on the DMCA, which can give insight into other proposals, for example to modify §230 to provide DMCA-like procedures. For this paper, they looked at a random sample of 451 §512 notices from The Planet, a hosting service provider in Texas, out of a set of 6366 from 2004-2007. They coded the set for parties, dates, claims, DMCA section, etc.

The Google dataset from their first paper mostly concerned search, as you’d expect: people were using the takedown to get things out of search indexes—competitors trying to change search rank. The Planet was a more standard ISP at the heart of the DMCA’s concerns about hosting.

Providers of connectivity got a straight safe harbor from infringement under §512(a) in 1998. In 1999, Napster showed up. The DMCA presumed that infringing content was hosted, but the major copyright owners quickly grew concerned over p2p, which is a transitory network communication for the ISP subject to §512(a). So what happened? Connectivity providers say: large copyright holders responded by sending takedown notices anyway and telling the ISPs that they needed to terminate repeat infringers’ access entirely. Research question: is that happening? Answer: 21% of their dataset, an extra burden on ISPs.

As expected, the people who send 512(a) notices tend to be large copyright industry players. Over 90% sent by third parties—BayTSP and other p2p focused contractors/rights enforcement agencies, trade associations, and others. Tend to be small shops, but they send a ton of notices. Though courts haven’t bought this, copyright owners argue that ISPs are obligated to investigate and terminate users.

Third parties send a lot of notices overall—55% of the sample. Range of techniques. A lot are well done, but their investigations aren’t always accurate—identifying IP addresses that aren’t on the Planet’s network, etc.

Who sends 512(c) notices? The third parties; large industries—shows that there were still a bunch of allegedly infringing files being hosted, not just shared p2p, so 512(c) is providing a benefit to copyright owners.

Qualitatively, how are people dealing with this complex statute—is it really cheap and easy? Apparent: the complexity of the statute and the underlying law was a real challenge. The Planet’s information about 512 is pretty clear to a lawyer, but to a nonlawyer it’s not. 20% of notices were returned with “does not substantially comply” notes. That doesn’t include a substantive evaluation of whether the claim sounds in copyright or anything else, just the statutory information: did you identify the copyright owner, the location of the material, etc.? (16% of notices were bounced when you excluded one particularly troubled and active copyright agent.) So this doesn’t include the problematic §512(a) notices—combined, that’s a pretty good chunk of activity.

Example: someone trying very hard to comply with the statute, but can’t figure out what he’s doing wrong; The Planet’s standard reply is that the notice is deficient and the complainant should visit their website. He says he’s done so and asks, angrily/plaintively, what he’s done wrong, but they just refer him back to the website. The authors think he probably just gave up.

Some people who seemed to have real claims were just unable to comply—misunderstood the DMCA. People were really bewildered.

They also got anonymous tipsters and people complaining about non-copyright content (game cheats, trademark, product keys), or people invoking non-US law. Some senders may have been confused, but some may also have been using §512 more strategically. Why not try to fit things into copyright if it means you can easily get what you need? Examples: unauthorized product resellers (Sony claimed copyright in photos of the products); game cheats (game companies complaining about gold farming, which implicates TM and contract but not copyright).

Conclusion: 512(c) remains useful for a wide range of copyright holders, but the senders also have trouble complying/understanding, which causes various problems—chaff for the ISP. These and 512(a) notices impose a genuine cost on ISP, though it’s hard to gauge how problematic this is. The greater risk: to targets. Different ISPs have different reactions—what they do in response to 512(a) notices may vary, and the authors feel that disabling internet access is a disproportionate response. Latest attempts: more draconian, three-strikes law like that passed in France. More moves towards filtering, too.

We need to understand more about rights enforcement agents and trade associations, prominent senders with incentives to find infringement and show results.

Reaffirm other recommendations: mostly tweaks to build back due process, like don’t do a takedown until the target has a chance to respond. Modest calls to help copyright owners who are having trouble using the statute—the Copyright Office or someone else should create educational materials on using the statute appropriately. Part of what makes §512 hard to understand is that it’s private, so more transparency would also help. Notices should be public. Also suggest caution before replacing §230 with notice and takedown—we see so much chaff with the wheat, and notice/takedown lacks any substantive/judicial-type review.

My reaction: The paper argues that copyright is one of the few claims where ISPs are actually required to take action to avoid liability, since so much is protected by §230, so there’s an incentive to send DMCA claims regardless of whether the conduct at issue is actually copyright infringement. This doesn’t entirely explain why lawyers would use the DMCA for trademark claims, where secondary liability would apply. Lack of familiarity with IP law or the hope that the ISP will just go along, coupled with uncertainty over whether the ISP would actually be secondarily liable for trademark infringement under the governing standards, could explain more of why all IP claims are funneled into DMCA notices.

A: TM private ordering: ISPs are beginning to follow similar procedures to the DMCA—eBay has essentially notice and takedown for TM. Sometimes people send mixed claims—copyright and TM together. But the ISP procedure tends to be copyright-based.

Incentives to Lead, Follow, or Compete: Comparative National Choices of International Copyright
Michael Yuan, Roger Williams University

England led with the Statute of Anne in 1709; US followed with the Copyright Act in 1790. Berne Convention led in 1886; the US followed in 1976 and 1988. The EU led in 1993 by extending duration for 20 years; the US ultimately followed.

When do countries have the incentive to lead or follow? Is this system a good idea?

Results of paper: it is desirable to have a lead-follow model except when the economic life of information goods in the leading country’s market is very short. But this is an unlikely case because the leading country is unlikely to act. In the ordinary case, not everyone is likely to follow—small countries can improve welfare by not following and free-riding—and that can be bad.

Model: two countries, each with a creative industry that competes domestically and internationally. Each creator decides pricing and volume of market participation. Each market provides national treatment to foreign works. In the lead-follow market, a leading country sets policy to maximize local welfare, and expects that follower will peg its copyright policy on the leader. In the competitive model, by contrast, countries act separately to maximize individual national welfare. There may be a need to incentivize small countries to lead/follow and to induce countries with short economic lives for information products to follow.

Question for Samuelson: how do you measure damages?

A: It’s clear, in general, that when a defendant sells items, there are lost profits/sales—compensating plaintiff for lost sales/lost license fees makes sense. Defendant’s profits are more about deterring infringement, but also often has a compensatory effect. People who don’t promptly register can have trouble getting enough of an award to cover costs, but costs are also an available remedy. We have statutory damages to make a small lawsuit possible—e.g., a photographer whose usual reproduction fee is $150. $750 can make detecting infringement/bringing a suit worthwhile. The legislative history suggests that one purpose is to make it possible to sue, but that’s more evident in 1909 because ordinary copyright owners who don’t promptly file, and most don’t, are ineligible now—wrong design.

Q for Urban: How often does the recipient counternotify? How often then does the notice-giver file/not file suit?

A: For Google’s search notices, the ISP doesn’t have to and can’t notify the target (no service relationship); Google said it essentially never got counternotification. Quilter: ISPs say they don’t get many. Didn’t see any in the study. The Planet gave them all correspondence attached to the original notice, but not the correspondence to the alleged infringer. We think that if they had gotten counternotices, we might not have picked them up, but we should have seen at least some of them in correspondence with the sender. We think people don’t know they can counternotify, and they might just give up. Lawsuit: another unknown, but sense is that it’s uncommon.

Q: Are there risks to the counternotice that might not be present under §512(f)?

A: §512(f) allows suit against knowing and material misrepresentations in the chain; people may be dissuaded, but the standard for liability is so high that it’s unlikely that anyone who understood this would have their decisions affected. (Understanding, of course, is precisely the problem the authors have identified in the study. Laypeople are really scared to claim rights because of all the legal and lawsuit-based language that accompanies a notice; I’ve seen this with YouTube users.)

Kathy Strandberg for Yuan: In your model, the cost of creation is independent of the length of protection—so that doesn’t take into account the effect of bigger rights on cost of creation, right?

A: Right.

Saturday, September 26, 2009

Pro se right of publicity claim proceeds

Conrad v. Madison Festivals, Inc., 2009 WL 3018031 (W.D. Wis.)

The pro se plaintiff sued for violations of the Lanham Act and state right of publicity law. She performs as the “Banana Lady,” for which she has a federal service mark registration, and produces family events relating to children’s health and wellness. Defendants produce the Kids Expo, at which Conrad performed in 2008 in exchange for a vendor booth. They solicited her for 2009, to perform her show “Strong as I Can Be” on stage and buy a vendor booth, but she decided not to do so. Defendants sent out a postcard promoting the 2009 expo that used a photo of Conrad performing as the Banana Lady. Conrad hadn’t consented to the use of her image. When Conrad demanded a fee, defendants eventually apologized but said they had no money to settle with.

The court found that the facts alleged in the complaint could state a false endorsement/association claim, though recovery of damage would require a showing of actual consumer reliance and actual injury to Conrad or unjust enrichment for defendants. The court also allowed Conrad leave to proceed on a false advertising theory, because the parties could be seen as competitors in that they produce educational events for children; the false advertising allegations were weak, but it was unnecessary to identify her specific means of recovery under the Lanham Act at this stage.

Wisconsin recognizes a statutory and common-law right of publicity; the statute bars the advertising/trade use of a living person’s name, portrait or picture without written consent. The common law protects a person’s interest in the publicity value of her identity from unauthorized commercial exploitation. Conrad’s allegations were sufficient to state a claim. Presumably her compensatory damages are the licensing value of her picture in advertising, which may be limited. My guess: the attorneys will come out on top here.

Press release on lawsuit not false advertising

Paradigm Alliance, Inc. v. Celeritas Technologies, LLC, 2009 WL 3045464 (D. Kan.)

Paradigm sued Celeritas over an allegedly failed joint venture with subsequent fallout, including trade secret claims. Celeritas counterclaimed for false advertising based on a press release Paradigm posted to its website, repeating the allegedly false claims of the lawsuit (claiming ownership in the technology developed by the parties and any related patents), thus planting doubt about Celeritas in consumers’ minds. The court found that there were no material false or misleading representations of fact because the press release stated that Paradigm had sued and listed the “allegations” in the suit. The press release, the court concluded, concerned only the lawsuit, and not the parties’ products (but see the Lanham Act coverage of false and misleading statements about “commercial activities”). Celeritas argued that because the allegations were false, the press release was false advertising, but Paradigm did file the lawsuit and did make the allegations as set forth in the release. That wasn’t a misrepresentation.

Friday, September 25, 2009

AT&T false advertising case continues in California

Morgan v. AT & T Wireless Services, Inc., -- Cal.Rptr.3d ----, 2009 WL 3019780 (Cal. App. 2 Dist.)

The plaintiff filed a putative class action based on AT&T’s marketing for premium cell phones that used a wireless network that AT&T allegedly changed to make the phones essentially useless. The court of appeals held that the plaintiffs alleged sufficient facts to sustain UCL, CLRA, and fraud claims, though they lacked standing under the FAL. Of note, the court rejected AT&T’s argument that the representations on which the UCL claim were based were nonactionable puffery—opinion, or predictions of future events. The court reasoned that the alleged reliance was not based on specific false representations, but on the overall effect of the sale of an expensive cell phone with multi-year agreements for the service necessary to operate the phone, combined with AT&T’s ad campaign touting an improving and expanding network. The court accepted that this could lead reasonable consumers to believe that AT&T would continue to provide the necessary service for a reasonable period of time, which could be the reasonable life of the phone.

Moreover, plaintiffs weren’t required to identify specific ads or representations on which they relied; they alleged that they conducted extensive research before buying, and the ad campaign was alleged to have taken place over many months in several different media with consistent claims by AT&T that its network was reliable, improving, and expanding. A presumption, or at least an inference, of reliance arises upon a showing of a material misrepresentation; this was sufficient to allege standing at this stage.

However, the plaintiffs didn’t have standing to bring a FAL claim about AT&T’s attempt to replace their expensive phones with $20 models that could use the new network (but lacked premium features) because none of the named plaintiffs took the deal.

Using a false name to get customers isn't false advertising?

Metropolitan Life Ins. Co. v. O’M & Associates LLC, 2009 WL 3015210 (N.D. Ill.)

From 1985 to 2005, Michael O’Malley was the managing director of the MetLife agency in Downers Grove, Illinois. In 1998, MetLife changed the name of the agency to O’Malley & Associates, though never registered this as a mark. In 2005, MetLife replaced O’Malley and then changed the agency’s name to Preferred Planning Group, instructing employees to stop using the former name, discard all former stationery, etc. There was no intent to resume use.

After that, O’Malley accepted an offer from MetLife’s competitor Guardian to set up a new insurance agency, which used the name O’Malley & Associates and the same logo incorporating the name that the MetLife agency previously used. Defendant O’M then hired 21 former MetLife agents, a handful of whom retained client files and information. Moreover, O’M had the USPS change the business address for O’Malley & Associates from the MetLife address to the O’M/Guardian address, and transferred the phone number. Relying in part on client lists from MetLife, O’M’s agents sent an announcement that O’Malley & Associates was “pleased to announce we [are] moving our offices to a larger location....” and some agents sent another letter that “I am moving my Downers Grove office and expanding the services available to you,” including forms to make the transition “seamless,” asking clients to “sign where indicated and return as soon as possible to insure uninterrupted service on your accounts.”

MetLife sued. The court rejected its trademark claim because of clear evidence of intent to abandon. MetLife argued that the residual goodwill in the mark, plus O’M’s bad faith exploitation of the mark, entitled it to relief, but the caselaw didn’t support this. In the 7th Circuit, only when an abandoned mark is confusingly similar to a newly adopted mark will a competitor be unable to pick up the abandoned mark.

MetLife then relied on a false advertising claim, which the court also, more surprisingly, rejected. The court held that “letters sent to customers” don’t fall under §43(a)(1)(B) because they’re not “commercial advertising or promotion.” Okay, setting aside that this is a wacky rule stated that broadly (what about messages designed to get current clients to re-up their about-to-expire contracts when the client is thinking of switching?), it’s nonsensical to apply that rule here for the basic reason that the targets weren’t O’M’s customers. They were, true enough, somebody’s customers—MetLife’s! By this logic, only advertising to people who aren’t currently in the market for the good or service is covered by §43(a)(1)(B).

Yet there are Seventh Circuit cases saying that “[a]dvertising is a form of promotion to anonymous recipients, as distinguished from face-to-face communication.” These letters weren’t either of those poles, of course (and it’s bizarre to exclude face-to-face communication from “advertising or promotion,” especially given that the latter word is in there to expand the category of communications covered). But another district court has held that “direct communications, whether in person or by letter” are not advertising or promotion, and this court agreed. The logic escapes me.

But not the court, which reasoned that the letters weren’t directed to anonymous recipients (so, if the advertiser buys a list of targets and sends messages to them instead of “current resident,” no Lanham Act coverage?), and the second letter contained a form that was “highly individualized”—containing the name and social security number of the recipient. That seems to me to make the false representation here—that the new insurance agency is the heir of the old one—more persuasive and material, not to make it not “advertising or promotion.” So, though these acts may have been “deceitful business practices,” they weren’t within the Lanham Act.

Because of a possible limitations period problem and the pendency of the litigation for over three years, including significant discovery, the court retained jurisdiction over MetLife’s remaining state-law claims.

Thursday, September 24, 2009

Darwin reframed (and defamed?)

Mary Elizabeth Williams, Kirk Cameron monkeys with Darwin: The sitcom star and super-Christian is giving away a new version of "On the Origin of Species," and it's got Nazis

Celebrations and exhibitions commemorating [the publication of “On the Origin of Species”] are gearing up across the world, but Cameron and his God squad are not going to sit around quietly while monkey ancestry gets peddled to America’s youth. On Nov. 21, they’re handing "the truth" straight to them -- in the form of 50,000 free copies of Darwin’s book, amended with a 50-page introduction refuting the whole megillah, at the top 50 college campuses across the country.. . . .

It’s easy to laugh at the absurdity of the project. It’s already being widely mined for its rich comic value, notably by a hot blond Romanian woman, who suggests maybe we get Richard Dawkins to do a new introduction to the Bible . . . .

But what's not funny is what happens when “the opposing -- and correct -- view” gets into the hands of "our future doctors and lawyers and politicians." That's when they realize they're holding a sneaky defilement of one of the most important books ever written. Nowhere on the front of the “beautiful, full color cover edition” are the words “extremist Christian version.” Because maybe if those targeted 50,000 students knew they were getting their free book from a ministry that advises its practitioners on how to “shut up” a Jew or explain to a homosexual that he’s damned, they might not be so keen on it. They might feel duped and angry at accepting something from a group that proclaims free speech but doesn’t have the courage to put its true intentions right there on the cover.

So, in a moral rights jurisdiction, would Darwin's heirs be able to suppress this edition?

Friday, September 18, 2009

Ghostbusting and the First Amendment

Congress is showing increasing concern over the practice of pharmaco-funded ghostwriting of medical articles, on which doctors and others rely in assessing the costs and benefits of various treatments. Given the constitutional protection of anonymous/pseudonymous speech, does congressional involvement in "ghostbusting," or ferreting out ghostwritten articles, raise free speech issues? If you want to allow Congress to act, is it because the interest in disclosure is substantial, or because this is really commercial speech in disguise?

Thursday, September 17, 2009

Bikemaker cleans its allegedly dirty hands

Campagnolo S.R.L. v. Full Speed Ahead, Inc. --- F.R.D. ----, 2009 WL 1835938 (W.D. Wash.)

Campagnolo sued its competitor FSA, alleging false advertising about the stiffness-to-weight ratio Campagnolo’s crankset (a bicycle component). FSA raised an unclean hands defense, and Campagnolo successfully moved to strike. In a Lanham Act case, an unclean hands defense is available when the plaintiff engaged in inequitable conduct relating to the subject matter of its claims. FSA’s defense was that from 2004 to 2006 (two years before FSA’s allegedly false advertising), Campagnolo falsely advertised the weight of its own crankset. There were no allegations of false claims about FSA’s cranksets. Thus, FSA’s claims didn’t directly relate to Campagnolo’s allegations, but only accused Campagnolo of misconduct in the abstract. General allegations about Campagnolo’s prior history in its crankset ads are not “fair game” for an unclean hands defense.

Wednesday, September 16, 2009

Libel laws and science journalism

NYT blog post here on UK libel laws' effects on science journalism and a current case. For a copyright angle, follow the link to the full text of the allegedly libelous article, which has been removed by the original publisher, the Guardian. Fair use?

Tuesday, September 15, 2009

Unauthorized ad uploads to YouTube

Interesting post at AdLaw by Request: Ad agencies presumably like it when other people repost their commercials without authorization, but they don't want to pay the performers any additional fees. The performers, who don't have any copyright interests, seek such fees for YouTube appearances and/or want the agencies to send DMCA takedowns. The agencies take the position they have no obligation to send takedowns, which are most likely not in their/their clients' economic interests.

If any performer sues YouTube, what result? It's Brown v. Ames, or maybe Fleet v. CBS, in the age of the DMCA. Is there such a thing as DMCA preemption? Does the DMCA add anything to the copyright preemption analysis? Does the copyright owner's careful hands-off policy support or undermine the idea of a conflict with copyright rights?

Somebody should write a note!

Monday, September 14, 2009

Out of joint: duelling supplements denied summary judgment

Rexall Sundown, Inc. v. Perrigo Co., -- F.Supp.2d --, 2009 WL 2891021 (E.D.N.Y.)

Rexall makes Osteo BiFlex, a nutritional supplement for joint care with Glucosamine and Chondroitin. It alleged that Perrigo, which makes competing GC supplements for sale as store brands, used false and misleading “compare to” statements, such as “Compare to Osteo Bi-Flex Glucosamine with Joint Shield Ingredients” and “Compare to Osteo Bi-Flex,” even though the formulations materially differ. Perrigo counterclaimed that Rexall was falsely advertising that it was the number one doctor recommended brand, that it was clinically tested, and that it had certain chemical superiorities, as well as that it wrongly used the Arthritis Foundation’s name and logo. The district court denied Perrigo’s motion for summary judgment on the claims against it, and granted Rexall’s motion for summary judgment on the counterclaims except for the alleged falsity of “10 times more concentrated than typical Boswellia extracts.”


Rexall alleged that its reformulated Osteo Bi-Flex includes 5-LOXIN, a standardized extract of the herb Boswellia serrata, whose joint-care benefits have been documented in published, peer-reviewed research. The studies suggest that Boswellia has anti-inflammatory effects; there are at least 6 boswellic acids, including AKBA, which the research suggests is the most active. Typical Boswellia extracts have 2-3% AKBA, but 5-LOXIN has no less than 30%, and reduced or nonexistent amounts of the other boswellic acids. Some, but not all, Osteo Bi-Flex products contain 5-LOXIN; they all containe Glucosamine and Chondroitin. Rexall’s survey found that the “compare to” statements are understood by 29% of consumers to communicate an equivalency message as to formulation and/or efficacy.

Perrigo responded that its evidence showed that AKBA levels in the competing products were nearly identical, within the margin of measurement uncertainty. Rexall didn’t dispute this, but argued that (1) Osteo Bi-Flex has a much higher percentage of AKBA in relation to the total of boswellic acids in each product, and (2) Perrigo’s product has twice as much beta boswellic acid, which reduces the effectiveness of AKBA.

Perrigo argued that its “compare to” statements were not factual representations but only general invitations to compare. In context, however, the court concluded that the statements could be implicitly false by implying product equivalence when the products were in fact materially different. “Compare to” might be nonactionable, depending on the context, but where it conveys a specific assertion of measurable fact, such as equivalent ingredients or efficacy, it is falsifiable and thus potentially actionable. Here, the statements invite a comparison of the products’ ingredients, which is more likely to convey that the products have the same formulation/efficacy, and the statements are in close proximity to performance claims. Moreover, the evidence suggests that the products are likely to be shelved in proximity, making a consumer more likely to infer equivalence. Perrigo’s own website says: “In most food and drug stores, you can look to the right of an advertised brand on the store shelf to find the national brand equivalent (store brand). Compare the active ingredient chart found on the back of the two packages and you will see that they are equal with regard to active ingredient and potency. The only differences between the two products may be the inactive ingredients, such as the colors, etc., and the price.” And finally, the text on the side and rear panels of the Perrigo products “are either verbatim or in substantial part from the prior packaging for Osteo Bi-Flex.” Thus, whether the “compare to” statements make factual claims is for a jury to decide.

Perrigo then argued that Rexall’s evidence was insufficient to show actual or likely deception. The court rejected Perrigo’s challenges to admissibility and found that a genuine issue existed. The survey tested “Compare to Osteo Bi-Flex Glucosamine Chondroitin MSM with Joint Shield Ingredients” against the control “Different from Osteo Bi-Flex Glucosamine Chondroitin MSM with Joint Shield Ingredients”; 47% of the test cell believed that the products provided the same benefits or contained the same ingredients, while 18% of the control group believed those things. The court found the survey sufficiently reliable to survive a Daubert challenge, despite criticisms of the control, the closed-ended questions on which the expert relied, and the data analysis—all of which go to weight rather than admissibility.

Next, Perrigo argued that the “compare to” claims aren’t false: the products contain the same amount of AKBA, the only ingredient the complaint alleged to be materially different. What I’m not getting here: given that the expert grouped “same ingredients” with “same benefits” in analyzing the survey answers, doesn’t Rexall have to show that the products don’t provide the same benefits? If it can’t show that, how can we know that the equivalence message perceived by consumers is false? Maybe the answer comes from the ingredient-by-ingredient analysis: Rexall submitted evidence that the other boswellic acids in the Perrigo products could be expected to diminish the anti-inflammatory effects of the AKBA. So there was a material issue of fact.

Finally, Perrigo contested materiality. The court thought that a rational trier of fact could find the claims related to core ingredients and/or efficacy. (Indeed, it would be hard to imagine a rational trier of fact finding otherwise, I’d think.) Moreover, the prominent placement of the claims on the packaging, and their proximity to performance claims, supports materiality.


The first two counterclaims involved “No. 1 Doctor Recommended Brand” claims. The problem was the same as in Mead Johnson v. Abbott: doctors generally recommend Glucosamine and Chondroitin, without specifying a brand; only 10% of surveyed doctors recommended Osteo Bi-Flex, though that was the top brand. Rexall has touted this claim heavily in ads and on the box. Rexall argued that Perrigo should have known about the alleged falsity years ago.

Perrigo also alleged that “clinically tested” was false. Prior formulations of Osteo Bi-Flex have been clinically tested, and the ingredients including 5-LOXIN have been clinically tested on humans, but the current formulation hasn’t been, and Rexall didn’t specify on the box what the clinical testing had been for. Rexall argued that it had discontinued this claim.

Then, Perrigo challenged the claim “More Pure Glucosamine as Compared to Glucosamine Sulfate” because there was no evidence that this fact would result in a performance benefit. Once again, Rexall disagreed and noted that it had discontinued the claim.

Perrigo further challenged the “10 Times More Concentrated” claim for the Boswellia ingredient, though a 30% AKBA extract has at least 10 times more AKBA than a typical Boswellia extract. Perrigo’s consumer survey showed that consumers who saw a package with this message, as compared to consumers who saw a package without the message, were more likely to think that Osteo Bi-Flex was superior to other Glucosamine/Chondroitin supplements in conferring performance benefits.

Finally, Perrigo challenged Rexall’s use of the Arthritis Foundation name and logo. Rexall has supported the Foundation for years with contributions, and is authorized by the Foundation to display its name and logo in packaging and ads. Rexall called this an “implied endorsement” in its strategic plans. Rexall argued that its boxes say “this product is not intended to diagnose, treat, cure or prevent any disease,” but Perrigo argued that many examples of packages and ads don’t say this, and that the disclaimer doesn’t appear close to the logo anyway, so the logo conveys the false and misleading claim that the product treats, prevents, or cures arthritis.

In 2008, the NAD ruled on Rexall’s claims—all except the last one at issue here. It didn’t find literal falsity, but recommended modifications: improving the disclosure on the “#1 Doctor Recommended Brand” claim, discontinuing “clinically tested” (though NAD found a reasonable basis for the claims with respect to glucosamine and chondroitin), modifying the comparison to Glucosamine sulfate and discontinuing the comparative claims regarding 5-LOXIN, and a few others.

The court found that laches warranted summary judgment on the “#1 Doctor Recommended Brand” and Arthritis Foundation claims. The other claims were not explicitly false, and except for “10 times more concentrated,” Perrigo had no extrinsic evidence of falsity. Perrigo’s consumer survey saved the “10 times more concentrated” counterclaim from dismissal.

Laches: The claims at issue had been around since at least the late 1990s, and Perrigo should have known—it’s sold its store-brand version since 2001, and admitted that it monitors Osteo Bi-Flex. Perrigo argued that it had no reason to know the claims were false until the 2007 NAD proceedings, but it should have known—the information needed to check “#1 Doctor Recommended” was publicly available, as was information about Rexall’s relationship to the Arthritis Foundation. Given that the Lanham Act has no statute of limitations, the court analogized to the 6-year statute of limitations for fraud; the claims here had been around for longer than that, raising a rebuttable presumption of laches. The court found that Perrigo had no excuse for its delay. Rexall had been prejudiced by its substantial investments of money and resources in using the claims in its ads and packages.

Perrigo argued that the public interest counseled against finding laches. Though there’s a public interest in avoiding false advertising, that can’t swallow the rule that laches is available in Lanham Act cases. With no health or safety threat alleged, the court found laches applicable.

Aside from the “10x more concentrated” claim, the court also found that all the claims—including the lached ones—were not literally false. Though “clinically tested” is an establishment claim, and though the current formulation hasn’t been clinically tested, the claim only appears on the Osteo Bi-Flex website, which discusses the various formulations and their primary ingredients, never specifying which have been clinically tested. The phrase doesn’t unambiguously apply only to the current formulation, so it’s not literally false.

Perrigo argued that the NAD and NARB decisions were extrinsic evidence of falsity, but the court disagreed. The findings of those decisionmakers can’t substitute for consumer evidence, and in fact might well be inadmissible hearsay, like judicial findings in other cases.

The remaining claim did survive. Perrigo argued that the “ten times more concentrated” claim, juxtaposed with a performance claim, conveyed to consumers that they were getting better performance benefits from a concentrated version, and that Rexall had no evidence of better performance. Rexall’s Daubert arguments about Perrigo’s survey on this point were as unavailing as Perrigo’s; a 17% net deception result, as reported by the survey, was sufficient to proceed to trial.

Perrigo also had sufficient evidence of materiality and causation. Rexall argued that both the control and test subjects expressed essentially the same amount of interest in purchasing the product. However, that doesn’t make the claim immaterial as a matter of law. Materiality need not be proven by extrinsic evidence, and may be shown by evidence that the claim relates to an inherent characteristic of a product. (Take that, Papa John’s!) Likewise, though Perrigo didn’t submit specific evidence of harm, injury may be presumed where a comparative statement is obviously targeted at the challenging party, given the nature of the market. Here, the claim “does seem to suggest an advantage over competing products,” and given the summary judgment standard, Perrigo showed a material issue about whether the claim targets it.